Top 3 Trades for 2011

If you’re interested in currency and commodity markets, Dennis Gartman (author of the Gartman Letter) is a name you’ve probably heard before. This week, he gave CNBC correspondent Drew Sandholm his top 3 trades for 2011.

Buy gold and short the Euro against it

Buy the Australian Dollar and short the Euro

Buy soybeans and corn

Gartman assumes that Europe is in economic trouble, due to their debt levels. And gold continues to trend higher. So he advises buying gold using Euros, and then shorting the Euro currency.

Per the article:

“Gold is always a psychological trade,” Gartman said. “There’s very little that’s fundamentally warranted in gold. It’s psychology pure and simple. It has come, however, the second or third reservable currency.”

Gartman also thinks that the Chinese are reducing their holdings of the Euro and US dollar and investing in gold.

The article does not dive any deeper into the Australian Dollar trade. I assume that Gartman’s reason for the second trade is the link between the Australian economy and the export of commodities. As long as demand for commodities (such as gold) remains strong, the Australian economy (and therefore Australian Dollar) should perform well.

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As for the third trade, Gartman feels that soybeans and corn will have supply-side challenges in 2011, which will increase prices (similar to cocoa and coffee prices in 2010).